Econ 161-Lecture 17

Econ 161-Lecture 17 - June 2, 2011 Lecture 17 c...

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Global Integration of Latin America Lecture 17 c Marc-Andreas Muendler University of California, San Diego June 2, 2011
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17. Earlier Financial Crises and the Great Recession in Latin America Econ 161, c M. Muendler The “Washington Consensus” Washington Consensus . Term coined by John Williamson (1990) to summarize alleged minimum consensus among economists in Wash- ington DC (IMF, World Bank, US Government, DC think tanks) Shift in development strategy away from state planning towards mar- kets and ‘getting prices right’ Prescriptions mainly meant for Latin America but the ideas and the term gained a life of their own Free-market proponents consider list as mandatory and exhaustive
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17. Earlier Financial Crises and the Great Recession in Latin America Econ 161, c M. Muendler The List of “Washington Consensus” Prescriptions Microeconomic elements Use tariffs instead of quotas, gradually reduce tariffs Encourage foreign direct investment Privatize state enterprises where markets work Remove barriers to entry and instill competition Guarantee security of property rights
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17. Earlier Financial Crises and the Great Recession in Latin America Econ 161, c M. Muendler The List of “Washington Consensus” Prescriptions Macroeconomic elements Avoid large government deficits Spend public resources on education and infrastructure, not huge projects Cut tax rates, widen the tax base, collect efficiently Keep interest rates universally above inflation rates Maintain competitive and credible exchange rate
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17. Earlier Financial Crises and the Great Recession in Latin America Econ 161, c M. Muendler The “Washington Consensus” Two Decades On Conventional growth projections continued to forecast a return to the boom of the 1960’s and 70’s However, the economic performance of countries adopting Washing- ton consensus policies is reason for disappointment Rapid adoption of pro-competitive policies may disrupt economy and stifle entrepreneurial activity (too much too fast of the right things) Structural and institutional factors may hinder growth (too little of the little understood right things)
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17. Earlier Financial Crises and the Great Recession in Latin America Econ 161, c M. Muendler Institutions Institutions establish property rights, address market failures, reduce transactions costs, solve coordination problems, mitigate information problems, and thus provide the frame- work for economic, social and political interaction For economists, institutions are the rules, norms and processes that guide economic transactions The imposition of a set of rules can lead to widely divergent outcomes in economies with different institutional arrangements For political scientists, institutions are the locus of rule-making, policy- making and implementation Policy making is important to growth, and successful policy implementation requires attention to institutions
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17. Earlier Financial Crises and the Great Recession in Latin America
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This note was uploaded on 08/14/2011 for the course ECON 161 taught by Professor Muendler during the Spring '11 term at San Diego.

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Econ 161-Lecture 17 - June 2, 2011 Lecture 17 c...

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